Question

Lock My Work temaning) eBook Problem Walk-Through Project L requires an initial outlay att 0 of $75,000, its expected cash inflows are $9,000 per year for 9 years, and its WACC is 12%. What is the project's MIRR? Do not round intermediate calculations. Round your answer to two decimal places. O

Answer 1

MIRR is similar to IRR. Here it is assumed that intermediary CFs are reinvested at WACC. Where as in IRR, intermediary CFs are assumed as reinvested at IRR.

FV of CFs:

Year	CF	Bal Yrs	FVF @12%	FV of CF
1	$ 9,000.00	8	2.4760	$    22,283.67
2	$ 9,000.00	7	2.2107	$    19,896.13
3	$ 9,000.00	6	1.9738	$    17,764.40
4	$ 9,000.00	5	1.7623	$    15,861.08
5	$ 9,000.00	4	1.5735	$    14,161.67
6	$ 9,000.00	3	1.4049	$    12,644.35
7	$ 9,000.00	2	1.2544	$    11,289.60
8	$ 9,000.00	1	1.1200	$    10,080.00
9	$ 9,000.00	0	1.0000	$      9,000.00
FV of CFs				$1,32,980.91

Thus $ 75,000 has become $132,980.91 over a period of 9 Years.

FV = PV (1+r)^n

132980.91 = 75000 ( 1 + r)^9

(1+r)^9 = 132980.91 / 75000

= 1.7731

1+r = 1.7731^(1/9)

= 1.0657

r = 1.0657 - 1

= 0.0657 i.e 6.57%

MIRR is 6.57%